Should This Keep Apple Up at Night?
While Donald Trump is still a leading contender for the Republican leadership in the 2016 race for the White House, he recently found time to scold Apple Inc. (NASDAQ:AAPL) for manufacturing its products in China. Trump is not urging this nationalistic turn to boost the value of AAPL stock; rather, he wants American technology firms to create more jobs in the United States.
While addressing a crowd at Liberty University in Virginia (a rather aptly chosen venue for the unapologetically nationalistic sentiment of the GOP presidential nominee’s suggestions), Trump states, “We’re going to get Apple to build their damn computers and things in this country instead of in other countries.”
Indeed, Donald Trump’s anger towards Apple and its subcontracting ways is retroactive. Trump said he would find a way to punish Apple for subcontracting, particularly in China.
Statements Are Not Intended for Apple’s Ears Only
Trump is not targeting Apple alone. He is taking aim at all companies that outsource their production.
Trump believes that Apple takes advantage of the low cost of labor in China to increase the margin on its products and raise the value of Apple stock. Apple CEO Tim Cook, meanwhile, said that Apple is not assembling “iPhones” in China because of its workforce and lower labor costs; rather, China has the expertise and the highly professional factories, as well as much larger capacity, that makes it attractive for Apple’s manufacturing needs.
Trump would be unimpressed. Trump is not wavering in his message and he knows this is what’s going to win him the nomination; Donald Trump is on point. Republican and Democratic assembly workers alike, living and working—or reading the manufacturing job classifieds—in the United States today will find they share the same concerns when Trump is the one articulating them.
Prior to Apple, Trump expressed similar sentiments toward Ford, censuring it for having invested $2.5 billion on manufacturing plants in Mexico, even if the plants in question make parts rather than whole vehicles. (Source: “Trump: I’ll force Apple to make its ‘damn computers and things’ in US,” ZDNet, January 19, 2016.)
Yet, Trump might also want to consider taking a gander across the Atlantic, because China is not the only beneficiary of Apple’s outsourcing. Apple is expanding in Ireland, having announced the hiring of some 1,000 new workers there last November. AAPL stock did not react to the news, but Apple has been in Ireland since 1980 and it can count on some 5,000 employees at its Cork office. (Source: “Apple increasing employment in Ireland creating 1,000 more jobs,” Macnn, November 11, 2015.)
Overall, Apple stock should benefit from such announcements because the additions (Apple had already increased its staff by 1,000 employees in Ireland in 2014) are direct evidence of the increasing demand for the company’s products.
If China is attractive for its labor costs and manufacturing prowess, among OECD markets, Ireland offers appealing tax incentives and Apple is bringing intellectual property to its shores too, not just fleeting technological jobs. Apple is building a $1.0-billion 263,000-square-foot data center near Athenry in County Galway to be ready by 2017, which will give jobs to some 300 additional people. (Source: Ibid.)
It’s Not Just China
Politically, it might be easier for Mr. Trump to focus his political attention to Ireland than China. Indeed, Ireland’s advantages have to do with fiscal policies, a topic potential president Trump should feel qualified, if not encouraged, to discuss.
Many Silicon Valley giants like Apple, but also Google, Microsoft, and Facebook, have their European headquarters in Ireland because of fiscal advantages. Ireland caps corporate profits at 12.5% and it offers a highly skilled English-speaking workforce, which in some ways, competes more directly with Apple’s staff in Cupertino.
Indeed, if Trump wins, Apple and its fellow Silicon Valley tech companies, as well as ordinary Americans, will have less to worry about from the insidious villain known as “outsourcing.” Under Donald Trump’s tax plan, even the lowest-earning Americans win, says the candidate. (Source: “Everyone’s a Winner under Donald Trump’s Tax Plan,” The Street, January 16, 2016.)
This is because Trump has pledged to lower the corporate tax rate to 15%, while also applying a one-time tax for the repatriation of funds held overseas at a flat 10% rate, ending deferrals on taxes from corporate income earned abroad. (Source: Ibid.)
Donald Trump Sounding Like Bernie Sanders
Donald Trump is emerging as a champion of the proverbial “little guy,” scaring Wall Street and embarrassing some of his potential Democratic rivals Hillary Clinton and Bernie Sanders alike. Addressing a crowd in Iowa, a key primary state, Trump used the volatility in the financial markets and their apparent correlation with China.
He told Fox News Sunday that the U.S. and China have become too interdependent for comfort: “We are so tied into China, that when China goes bad, we go bad. We’re just tied in, and we’re tied in to their advantage, not to our advantage.” (Source: “‘Tax Wall Street,’ Trump Pledges after Worst Market Week Since 2011,” Bloomberg, January 11, 2016.)
While speaking to the crowds, he was more direct, distancing himself from Wall Street—something Hillary Clinton might find harder to do: “I know Wall Street. I know the people on Wall Street. We’re going to have the greatest negotiators of the world, but at the same time I’m not going to let Wall Street get away with murder. Wall Street has caused tremendous problems for us. We’re going to tax Wall Street.” (Source: “Trump pledges to tax Wall Street after worst market week since 2011,” Financial Review, January 10, 2016.)
Indeed, it is difficult to distinguish candidate Trump from candidate—some would even say comrade—Sanders. During a heated episode in the recent New Hampshire debate, Sanders accused Hillary Clinton, not Trump, of having received thousands in campaign contributions from the big Wall Street players, including Goldman Sachs, arch-villain in the Oscar-nominated movie The Big Short.
“Can you really reform Wall Street when they are spending millions and millions of dollars on campaign contributions and when they are providing speaker fees to individuals? So it’s easy to say, well, I’m going to do this and do that, but I have doubts when people receive huge amounts of money from Wall Street,” said a Sanders, sounding like Trump. (Source: “‘Sanders Takes Aim At Clinton’s Wall Street Ties: “I Don’t Take Money From Big Banks,” Fast Company, January 17, 2016.)
Alternatively, is it vice versa?